Logistics Know How

Transportation costs to consider for your freight and shipping calculations

As a small or medium-sized company you have to ensure your operational costs, including transportation costs, don’t exceed your budget. In this article, we will explain the different transportation costs relevant to your cargo and give you an overview of what to consider when budgeting for your next shipment.

Anna-Sophia Metzel, Maik Schulze, 18 May 2022

There are several different things to consider when it comes to your transportation costs. At Twill we understand it can be difficult and sometimes confusing to figure out the freight shipping costs. However, as a company, you need to pay attention to the logistics and different transportation charges. That’s why we have listed the most important things to consider when it comes to your shipping costs.

The most important transportation costs for your cargo shipments

Transport price per item

The first step when calculating your shipping costs is to work out the transport price per item. The cost per transportation depends on the type of transportation mode you decide to use to get your goods from A to B. The transport price per item is significantly higher when transported via air than via sea. At Twill, we transport your cargo from warehouses of production to the location of your delivery. This enables us to not only take care of ocean transportation but also inland transportation and customs services. Transportation costs might not be the main driver for your logistics decisions, but we encourage you to take them into consideration when looking at the bigger picture.

Production costs

Part of your transportation charges are your production costs which include the production site, staff, raw materials and infrastructure among others. These expenses are easier to identify and quantify.

Transaction costs

The transaction costs quantify the management and organisation of your activities and include transportation costs. They are harder to identify as there can be hidden costs. Taking the cost blocks into consideration and considering that these costs are incurred even before you have generated $1 turnover, can be a fatal error in your calculations. There are also additional costs linked to transaction costs. We’ve listed four possible cost blocks that can be assigned to transaction costs:

  • Costs of Initiation: These costs refer to researching costs when looking for information needed.

  • Costs of Agreement: Costs that are connected to negotiations and contracting.

  • Costs of Control: Costs to ensure standards of quality, quantities, prices, and compliance are met.

  • Adjustment costs: These costs refer to conflict resolutions, implementation of changes with regard to prices, qualities, etc.

Costs of capital

Another important cost factor is the cost of capital. Depending on the setup, this can play a major or a minor role in your company. There are two set-ups: transport-intensive vs. warehouse-intensive.

  • Transport-intensive: This means you have high transportation costs but low storage costs.

  • Warehouse-intensive: This means you have high storage costs but low transportation costs.

Both setups can make sense, however, the costs of capital are often underestimated with warehouse-intensive set-ups. Costs of capital are the reflection of the costs of your stored goods. Since this capital is tied up and therefore cannot be invested profitably, they are opportunity costs.

A simplified calculation with the following assumptions can help you to understand these costs

You´ve got 5.000 articles of a product in stock that are sold in one month.

  • Initiation Stock level: 5.000 items

  • Final Stock level: 0 items

  • Average stock: 2.500 items

  • Value per item: 15 $

  • Average Costs of stock: 37.500 $

  • Rate of interest: 2,8 %

  • Amount of days per month / per year: 30 / 360

Costs of capital per month = ((37.500 $ x 0,028) x 30 days) / 360 days = 87,50 $

By applying this simple calculation to your entire product range and to one financial year, surprisingly high amounts can be calculated. These costs are recorded under your floating capital.

Let us handle your logistics and know the total transportation costs upfront

When it comes to transportation and logistics, there can be unforeseen logistic expenses from shipping delays caused by poor weather conditions, road work and port strikes. These are additional shipping costs you might not have included in your overall transport calculation, but should be aware of. If you, for example, ship your cargo in a container by sea, you want to ensure you won’t lose money if your goods end up being damaged or lost. This is why Twill offers Value Protect, for your peace of mind. We ensure your cargo is protected at all times during the transportation with us.

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